After turning around its financial operations in 2002, Meadowbrook Insurance Group Inc.'s CEO Bob Cubbin faces another challenge this year to right its ship after A.M. Best downgraded its rating last August to B++ from A-.

While Meadowbrook is regrouping, Southeast Michigan's other two large property casualty insurers — H.W. Kaufman Financial Group and Amerisure Mutual Insurance Co.— are steaming ahead with double-digit growth predictions this year.

Cubbin said the Farmington Hills-based property casualty insurer, which employs 1,000 workers nationally with 250 in Michigan, has taken several steps to return to profitability. Changes included increasing workers' compensation premiums by more than 60 percent in California and discontinuing a money-losing excess workers' compensation business venture in Los Angeles and a liability insurance program for long-haul trucks in the Southeast.

"We terminated about $120 million in business. We are in a period trying to retrench a little bit," Cubbin said. "Right now our goal is to stabilize our balance sheet and return to profitability in 2014."

But Meadowbrook (NYSE: MIG) still must put together at least two straight quarters in which it does not take reserve charges before investors regain confidence in the company, said Ken Billingsley, senior vice president and research analyst for Washington, D.C.-based Compass Point Research & Trading LLC.

For fiscal 2013 ended Dec. 31, Meadowbrook had had a net operating loss of $117.9 million, or $2.36 per share, compared with net operating loss of $28.4 million, or 57 cents per share, for the same period in 2012.

Billingsley said Meadowbrook has incurred about $112 million in combined net reserve charges over the past eight financial quarters. The charges covered underwriting losses for workers' compensation and the long-haul trucking claims in the Southeast.

"Investors were surprised by the reserve charges and why the actuaries and auditors got it so wrong," Billingsley said. "They have taken a number of actions, but we expect a slowdown. ...We estimate they will be writing 40 percent less net premiums at the end of 2014 as compared to the end of 2012."

Cubbin said Meadowbrook projects a 25 percent to 30 percent drop in premiums from about $1.1 billion written in 2012 to between $775 million to $800 million this year. In 2008, premiums written totaled $600 million.

The decline in revenue was partially due to Meadowbrook's decision in 2012 to drop unprofitable long-haul trucking and L.A. workers' comp business.

Cubbin said Meadowbrook has struggled the past two years, primarily because the company didn't increase premiums in workers' comp as much as it needed to from 2009 to 2011. It also incurred losses from higher than expected tornado damage in the Midwest.

"You set premiums to earn you a small underwriting profit," Cubbins said. "Sometimes the actuarial team gets it wrong or something happens in the marketplace to change your calculations."

In California, Cubbin said, several court decisions led to an increase in paid claims. In addition, regulatory changes increased workers' comp benefits there.

To begin covering those higher costs, Meadowbrook in 2010 began obtaining rate increases in workers' compensation and property casualty. In 2013, rate increases averaged 11 percent across all lines.

The net result of Meadowbrook's actions, said Cubbin, will be to improve profitability. For 2014, Meadowbrook projects net operating income to range between $25 million to $35 million, or 50 cents to 70 cents per share.

Amerisure's story

Amerisure's total direct written premiums are expected to grow at least 10 percent this year to about $760 million from $690 million in 2013, said CEO Richard Russell.

But more important, Russell said, the private stock company's surplus grew $71 million, or 9.7 percent, to $803.9 million from $732.9 million in 2013 and is expected to grow 6.2 percent this year.

"We focus on surplus accumulation," Russell said. "We are a long-tail casualty writer. We make very little money in underwriting. Investment is critical for us. We hold premium dollars for losses that go out 30 years or more. When investment yield goes down a bit, it hurts and we have to increase premiums when that happens."

Farmington Hills-based Amerisure, which serves midsize commercial companies in manufacturing, construction and health care, operates agencies in 23 states but does business in all 50. The company employs 706 workers nationally with 370 in Michigan.

Alan Jay Kaufman, CEO, Kaufman Financial

Kaufman Financial's moves

At Kaufman Financial, CEO Alan Jay Kaufman said his Farmington Hills-based company's continued diversification into brokerage, hiring key staff in New York and its three acquisitions last year bode well for continued growth.

Kaufman Financial, which also owns the Burns & Wilcox insurance brokerage, projects revenue to grow 15 percent this year to $1.6 billion.

Three acquisitions in 2013 added $25 million in annual revenue to Kaufman Financial, he said: New York City-based Global Excess Partners, Spectius Underwriting Solutions, Ontario, Canada, and ISI Insurance Services in Uniontown, Pa.

Last year, Kaufman strengthened its brokerage business by hiring two well-known executives for its growing New York office.

Last June, Denis Brady was recruited as president of Burns & Wilcox Brokerage after heading up the San Francisco office of RT-Specialty LLC.

In December, Evan Bull joined Burns & Wilcox after more than 20 years at the Marsh and McLennan Agency. Bull will lead a New York-based specialty wholesale property team.

Kaufman said the company plans to hire additional employees this year in Michigan, adding to its 240-employee workforce, a 19 percent increase over 2012, he said.

Despite analyst predictions, Russell and Cubbin are predicting strong years for their main lines of workers' compensation. Kaufman is predicting positive growth in the excess and surplus insurance lines along with its expanding brokerage business.

A new report from Standard & Poor's Ratings Services concludes that revenue for the workers' compensation sector will likely decline in 2014.

"We think the workers' compensation space and auto liability will be very positive in 2014," Cubbin said. "Property might not be as strong because of the storms. But our excess and surplus lines also will be robust."

Russell said premiums written for workers' compensation, which has been the 102-year-old company's primary product line, will grow this year with the help of sales to hospitals, assisted living facilities and other health care organizations.

"We began writing health care in 2007, and it is our fastest-growing" market, said Russell, adding that health care now represents 6 percent of written premiums.

Billingsley said low claims and premium increases for workers' compensation have made it an attractive business line for insurers the past decade.

"Our workers' compensation line is our most profitable, and we expect it will continue that way," Russell said.

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